Energy paper (1975)
Our rates have gone up. I have a small house with a wood furnace.
I have electric lights. I have an electric fence for my stock. I have
a freezer and a refrigerator and I believe that's all. And my bill
runs over $25 a month. And that's a very, very hard thing to take.
Jim Buckley, member of a Vermont electric cooperative, at its 1974 annual meeting.
The Buckleys barely made it through last winter. Their prospects are now worse. His family fears unemployment while their costs for such luxuries as moving around, keeping warm and seeing at night are rising. He would like to borrow money and keep his taxes down, yet lopsided competition with the oil and utility companies for money, land and tax breaks has diminished his possibilities of obtaining each.
In order to generate electricity, the utilities must generate unprecedented rate hikes. Yet Mr. Buckley was among hundreds of people protesting just such a proposed rate increase at his utility's annual meeting. In order for the national economy to avoid total collapse, oil-dependent investments must be made. Yet the heightened use of oil cripples our balance of payments, is inflationary and therefore directly diminishing any salary earnings stemming from business recovery. In order to create an upward turn in the economy, tax breaks must be given to industry. Yet tax revenues are needed to create government jobs and to pay for relief. Solutions become problems.
About 20 percent of New England's electrical power comes from nuclear plants, and nearly all of Vermont's power is thus generated. Yet the financial and environmental problems involved in nuclear power has led to grass roots opposition movements which have recently forced the Vermont House to pass legislation which will effectively block the introduction of new atomic power plants in the State.
How did so many contradictory forces come about? Why is it all breakingdown now? To make sense out of the energy and fiscal crises, one must look beyond cries of "obscene" profits and examine both the political and economic framework which gave them life: Mr. Buckley's instability is a natural outcome of an inherently unstable economic system.
Corporate growth contains the seeds of corporate stagnation, but stagnation does not necessarily lead to renewed growth. The specific solutions to this dilemma—state aid, foreign investment and productive alterations in such areas as agriculture and transportation—themselves contain problems which have come to haunt the likes of Mr. Buckley with particular force.
More generally, the system has grown by becoming disproportionately energy dependent and debt ridden. As the social costs of paying for those debts become clear, the necessity and desirability of prolonging that system's survival are brought into question.
In both the economic and psychological sense, then, our economy is simultaneously the world's most awesome and the world's most vulnerable.
UPPERS AND DOWNERS
Business expansion depends on the costs of equipment, money and labor being smaller than their potential return. Since equipment costs are traceable to recent and current labor costs, the balancing act that businessmen undergo when considering investments translates to a question of the price and availability of labor. At the end of a prolonged slump, labor availability is high and its militancy and price is low. Future expansion is thus made possible by previous contraction. With these favorable conditions, the businessman has motivation to invest; his competitive relation to other firms compels him to invest. Being in demand once again, labor's security and wages begin to rise. But this process is self-limiting.
Professors Raford Boddy and James Crotty have demonstrated that in the first half of a typical boom, labor costs decline relative to production costs: But from the peak of the boom onward, they increase faster than the firm's production costs. There is a decline in the ratio of profits to wages as labor gets a larger share of the pie. Sheer profits soon after begin to fall and future
investments look grim. During the five years following the 1965 business cycle peak, for example, labor's share of national income rose by four percent while the share going to corporate profits fell by two percent. Further, Brookings Institute calculations show that during that five year period, the annual growth rate in labor productivity—output per man hour—declined from 2.51 percent to 1.88 percent.
The late 1960's in short, was not the best of times for business in America, and the consequent recession of the early 1970's was to have profound repercussions for the oil and utility companies. The beginning of a boom is the end of a slump. The end of a boom is the beginning of a slump.
STAGNATION
The Great Depression shattered the widely held notion that capitalism's internal paradoxes were self-righting; that economic swoons would remain periodic. Lord Keynes recognized the then heretical but now commonplace fact that protracted contraction could well lower national income to the point of scarcity; and being scarce, its price would not fall enough to motivate businessmen to borrow it for expanded investment. Moreover, the competition between employer and employee had become so unfavorable to the employee that political stability was threatened.
The system was fundamentally incompatible with itself. The variety of growth policies thus resulting—the use of the state, foreign investment, and production alterations—coupled with the limitations of each, provide the context for understanding our long, cold winters.
THE STATE
A visitor from Mars might see little difference between
the government and the ailing corporation it is propping up.
John Cobbs, Business Week
State interference in the privately owned economy was certainly not introduced in the 1920's, but it did not really blossom until that crisis. Some measure of this change can be gotten from the fact that while in 1929 government purchases accounted for one in ten dollars of national production, by 1962 that had risen to one dollar in five. Government spending was 9.8 percent of our G.N.P. in 1929 and 28.8 percent in 1961.
Much of that growth is represented by the military, upon which we have spent over a trillion dollars since WW11. In 1939 only 1.5 percent of the work force was tied to the military; by 1961 that figure had jumped to 9.4 percent. And that branch of government spending has been lavished selectively upon certain classes of corporations and workers. All but five of our top twenty-five industrial firms are among the Defense Department's top one-hundred suppliers and those one-hundred firms receive about three-quarters of a11 military prime contracts. Further, every dollar of military spending generates only half as many jobs as one dollar of civilian spending while generating 20 percent more income. The big and rich get bigger and richer.
But in addition to deepening class divisions, this subsidization of the failing private sector carries another destabilizing mechanism; inflation. The government does not produce consumer goods but spends money on tanks and other disposable items. In the perpetual auction that characterizes our method of distributing goods, this means that more money is chasing less product. The salaries paid to military personnel or caseworkers become part of the pool of personal income bidding on goods made only in the private sector, and that is a classic formula for inflation.
Ernest Mandel has pointed out that the historic availability of an extended frontier gave American workers a comparative advantage in their wage bargains over their European counterparts. This pressured American firms to compensate for higher wages by technological innovation. The resulting international technological and wage imbalance made it inevitable that American investors would expand abroad. And the inflationary military build-up which helped make that travel necessary could, in a pinch, make that travel possible.
FOREIGN INVESTMENT: The Sexy European
After the Second World War, the corporate supply and demand balancing act was unbalanced. Having been in extreme demand for many years, labor was in short supply and militant. The fear of stagnation was also spreading since our productive capacities were built up to the point where future expansion could be achieved with the machinery at hand: In fact, the machinery at hand was so extensive that its full, domestic utilization would glut the market with goods. Further, the Russians had left our sphere of economic influence, taking most of Eastern Europe with them, and our traditional allies were in ruins. The solution to these problems was to export building capital and import profits.
Immediately after the war, foreign profits represented less than a tenth of U.S. corporate profitability: Today foreign investments represent over a quarter of that profitability and are growing twice as fast as the domestic portion. Moreover, the profit rates from our Third World investments are even more attractive than those in Europe. Such countries had traditionally provided England with super-cheap labor and raw materials such as tin, bauxite and oil. America would replace England.
But using the rest of the world to temper our over-utilization of labor and our under-utilization of capital contains its own destabilizing dynamics. Our European aid programs gave particularly strong boosts to the chemical, plastics and synthetics industries as well as replacing rail service with road transport; the effect of which was to make Europe extremely energy-dependent. Those programs, of course, also provided sufficient capital to build up indigenous industries. With specific regard to the energy situation, then, we have helped make them competitive both as consumers and as producers. Our recent peace-at-any-price with the Soviets and the intensification of trade hostility with Europe demonstrate how suddenly political allies can become economic enemies.
Aside from guaranteeing to those nations the freedoms we all enjoy at home, our Third World policy has rested upon some extraordinarily unstable, unpopular shoulders. With specific regard to the energy situation, this has left us vulnerable to genuine oil depletion. For, as is the traditional fate of colonialists, we have been confronted with the twin force of national liberation and liberating nationalization. We are being, in short, kicked out.
METHODS AND MATERIALS
Another fundamental way in which our economy has grown is by altering the methods and materials of physical production. Naturally occurring substances have been replaced with energy-demanding synthetics. White this revolution in productive techniques has no more revolutionized an inequitable social structure than aluminum bats and Astro-Turf have revolutionized sports, it has, contingent upon low energy costs, allowed poorer people to purchase plastic replicas of expensive looking goods. But what they gain in clutter they lose by paying a disproportionate financial and health bill for the resultant pollution.
While the effects of this productive transformation are pervasive, they are quite noticeable in such areas as transportation and agriculture.
TRANSPORTATION:
In the late 1930's, America enjoyed sound rail service. Los Angeles, for example, carried 280 million passengers over 445 miles of urban-suburban train tracks. A rail system can be extremely profitable to build, but once built it is essentially self-sufficient. The profit potential inhering in cars which regularly need replacement parts and outright replacement is as attractive as disposable military expenditures.
Documentation from the Mayor's office of Los Angeles shows that from 1938 to 1949, General Motors, Firestone and Standard Oil bought up and deliberately scrapped over 100 electric transit systems in 45 cities. By 1955, 88 percent of our nation's electric streetcar networks had been replaced with G.M's diesel buses. These in turn were allowed to run down, thus making cars the people's "choice".
This is part of an ongoing process whereby energy-wasteful means of moving people and goods have replaced their betters. From the point of view of preserving the environment and energy resources, rail transport is four times as efficient as trucks and sixty-three times as efficient as planes. But research done by Ralph Nader and associates has uncovered a concerted pattern of deliberately running down rail service. The point is simply that 'efficiency' is a concept which changes radically as one moves from the bottom to the top of the economic ladder.
On the production level itself, car makers have compensated for wage hikes by speeding up and automating the assembly process and heightening the use of energy-demanding materials. From 1958 to 1970, the amount of metal energy required to manufacture a car jumped some 40 percent, almost all of which is traceable to the doubling in the amount of aluminum used.
DIMINISHING RETURNS
Sometimes the limits to wasteful, empty growth appear as simple conflict. Though the level of direct physical exertion has been reduced, the consequent increases in chemical and dust contamination, noise levels and the unrelenting pace of production have not left assembly line work safer or more fulfilling. In fact, the more mechanized production the greater the potential for alienation and consequent resistance. Worker actions taken at the Vega plant in Lordstown, Ohio provide a near perfect example of the sabotage and disquiet likely to result from a near total attempt to mechanize and accelerate the assembly process.
Often the limits appear in the form of diminishing returns, as more effort is expended for less effect. This form of circular growth is a hallmark of capitalism devouring itself We get less from more not only with regard to the inefficiency of cars versus trains, but from each car as well. Between 1950 and 1970, for example, gasoline consumption rose nearly twice as fast as mileage driven. Nor is our energy and money output buying us greater durability. Barry Commoner and Michael Corr have estimated that using the production and maintenance quality already given to commercial trucks, new car production could be cut by 40 percent.
Planned obsolescence functions like the accelerated depreciation allowance: It enables a firm to achieve an artificially high turnover rate by simulating genuine social demand for new machinery. But when the system catches up with itself through any break in the pace of perpetual acceleration, it faces serious and sudden stagnation. American car manufactures are among the most powerful political and economic forces in the world. They are also among the most vulnerable. And what's bad for G.M. is bad for America.
AGRICULTURE
We consider land as an inventory, but we're all for growing
things on it while we wait for price appreciation or development. Agriculture pays the taxes plus a little.
Simon Askin, Vice President of Tenneco
From the corporate point of view, the extraction of foodstuffs is the most awkward facet of a total food distribution system. It has, therefore, followed the dictates of technological monopolization: Manual labor has been replaced with artificial fertilizer (43 percent of whose cost is traceable to the price of natural gas), and corporate farms are replacing family farms at the rate of some 2,000 per week. Food must be transported by energy-demanding trucks from increasingly fewer and remoter farming modules. Large scale mechanical harvesting requires fields dedicated to single crops, as state-aided monopoly (the top 7 percent of farmers receive 40 percent of state subsidies while the bottom 50 percent receive 9 percent) has urbanized the nation and made food growing one of our most energy-intensive industries.
THE RETURN OF THE DIMINISHING RETURN
Cornell researchers have shown that large scale single cropping in itself will generate twice as much insect infestation as pre-corporate farming. The corporate solution has been to spray over a billion tons of petroleum-based, nerve gas derivatives to kill the insects. After a few decades of this procedure, we now have twice as many insects classified as serious pests than before the spraying began. The government's reaction to law suits and farm worker demonstrations against the spraying is a magnificent example of a diminishing return within a diminishing return.
The 1972 Federal Environmental Pesticide Control Act provides reimbursement to any pesticide manufacture whose product is banned from the market. Aside from eliminating any incentive to create responsible, organic pest control, this bill adds the provision that funds for that reimbursement will come from the E.P.A.'s budget! This puts the E.P.A. in the Catch-22 position where it can only do its enforcement job at the risk of going broke. The more it protects us from pesticides, the weaker it becomes.
The law of diminishing returns has also dominated another lopsided attempt to improve nature; the use of artificial fertilizers. A good part of why artificial fertilizers require two percent of our nation's total energy use is that they are being applied in rising doses with proportionately diminishing yields. Professor Julian McCaull points out that while our corn growing methods produce about twice as much per acre as Mexico's "primitive" methods, they are about twice as inefficient in their per-acre use of energy.
The polluted water resulting from fertilizer runoff is a source of ecological destruction that has increased since the circle dances of Earth Day. Vegetables are engineered from inception to simulate healthy food and to withstand the rigors of automated harvesting. Once mechanically extracted, sprayed and transported (thus requiring preservatives), they are packaged with energy-demanding plastics as the corporate farmers go through the useful process of visually differentiating identical products. The centrality of energy-inefficient transportation policies to our economic health is evidenced by the fact that one of six workers ultimately depends on car manufacturing: The centrality of our mass production food policy is evidenced in Arthur MacEwan's research showing that agricultural exports have jumped by over 300 percent since the late 1960's, adding some twenty billion favorable dollars a year to our balance of payments. In all, our food and transport systems afford deceptively low prices at the point of sale, vast ecological waste, and diminishing returns on their energy investment.
SUMMARY
As energy-intensive materials replace labor-intensive ones, a parallel process occurs with competing companies. Barry Commoner and Michael Corr have divided a11 manufacturing firms into thirds: Between 1947 and 1967 the third with the worst energy efficiency—plastics and petrochemical concerns whose products use a disproportionate amount of energy—used 500 percent more electricity, while their contribution to the national output rose 50 percent, to 22.6 percent of the total; the middle third's power consumption rose by 300 percent and their contribution to the national output rose by 16 percent, to 71 percent of the total; the third with best energy efficiency achieved zero-growth in power consumption, while their contribution to the national output dropped from 29.6 percent to 6.4 percent.
Measured in gross terms, our economic growth is phenomenal. Labor is some twenty times more productive per hour than it was at the end of the War. But our upwardly mobile financial pyramid is grounded in progressively less efficient use of energy. The Ford Foundation reports that between 1870 and 1950, G.N.P. per capita increased three times faster than energy use per capita, but from 1950 to the present, G.N.P. per capita is rising slower than energy use per capita. Energy productivity—the amount of energy used divided by the amount of labor time involved in its use—is a full third worse today than it was in 1947.
The energy crisis underscores the vital importance of energy's role in stimulating and expanding, however circularly, our economy. For there is a close correlation between the rise in labor productivity and the fall in energy productivity. To increase industrial energy-efficiency entails higher prices and social unrest; curtailing industrial energy use entails reduced labor productivity: And that implies a cycle of higher prices and social unrest—or tower profits, economic stagnation and social unrest.
Hence, conservation pleas emphasizing the home or place of work, but not the methods or materials of work. And hence pleas for greater productivity that coincide with the admonition; "A country that runs on oil can't afford to run short."
Diminishing energy returns is a physical reflection of our economy's tendency to run short. Our government's pump priming has been sponsored largely by deficit spending. In 1940, the Federal debt was $43 billion. Today it exceeds $500 billion, and the government spends over 10 percent of its budget paying off that debt. The government is not unique in living on borrowed time. David Deitch has pointed out that debt as a percentage of net profits for non-banking firms climbed from 8 percent in 1950 to 60 percent in 1969. As corporations go deeper into debt, their profits, like their products, become less efficient.
In order to arrest this tendency, the government has enacted a variety of subsidization measures aimed at tunneling tax money to debt-ridden companies. One such measure, the depreciation allowance, accounted for 49.4 percent of plant and equipment expenditures for large, non-banking firms in 1953. By 1962 that figure had reached 81.9 percent.
As the state continues to underwrite the privately owned firm, lost taxes must be recovered; the debt must be shifted to the taxpayer. But as the inequitable tax burden rises, the distinction between subsidization and nationalization becomes smaller...both harder to explain and sustain.
In sum, modern capitalism reveals two contradictory tendencies: The survivors of each successive business cycle are more capital and energy intensive; more awesome. But their survival and subsequent growth depend in growing proportions upon misused energy as well as fiscal and ecological debts. The conditions which enable our economy to persist are precisely those conditions which may do it in.
Hence we begin our examination of the oil companies and the energy crisis—the specifics of Mr. Buckley's plight—in the framework of an economy with the simultaneous need for overall expansion and periodic contraction; a system resting on an unbalanced federal budget, an explosive foreign policy and stagflation: All of which are coming home to roost and haunt.
Major References
Ernest Mandel, Europe vs. America, Monthly Review Press, N.Y., 1970
Raford Boddy and James Crotty, "Class Conflict, Keynesian Policies and
the Business Cycle", Monthly Review, October, 1974
Barry Commoner and Michael Corr, "Power Consumption and Human Welfare
In Industry, Commerce and the Home", 1970, unpublished.
Arthur MacEwan, "Changes in World Capitalism and the Current Crisis of
the US Economy.", Radical America, Jan-Feb, 1975
Mayor Tom Bradley, Testimony before the Subcommittee on Antitrust and
Monopoly of the Committee of the Judiciary, U.S. Senate, February 27, 1974
The balancing act that Mr. Buckley and his neighbors in Vermont have been enduring with their personal budgets hinges upon the balancing act that businessmen in general and oil men in specific have been undergoing for the past half century or so. It is not working particularly well for any of them, though some experience its failings more directly than others.
Mr. Buckley's financial plight stems from our system's chronic inability to stabilize supply and demand. This is the genesis of the persistent, self-contradictory business cycle. Sometimes this dilemma appears in the form of diminishing returns, other times as simple conflict within economic society. While the law of diminishing returns has dominated our nation's use of energy,
the dynamic of sheer conflict, resolution and more conflict is more relevant to understanding the extraction and control over oil.
The oil industry is in the paradoxical position of being unusually blessed and cursed. Its blessing comes from the critical role its products have played in our economic growth. But due to the international availability of the product, it has been relatively easy to unbalance favorable supply and demand ratios.
Moreover, in dealing with the curse of oversupply it has become an extremely capital intensive industry. It has shed labor in favor of machinery. Hence it cannot respond to a dimming profit picture with the traditional expedient of extracting more out of labor. It must eliminate competition, raise prices or extract more out of the ground.
Given the centrality of oil in our economy, our examination of its historic balancing act will rather starkly reveal the high stake dynamics of the role of the state and the role of foreign policy in an attempt to keep the lid on. It will also reveal Mr. Buckley's difficulty in keeping warm, his disillusion, and his turn to anger.
FREE FOR SOME
The early history of oil reflects the extreme vagaries of a free market commodity with modest demand and no control over supply. In 1860, a barrel cost ten dollars; the following year ten cents; two years later eight dollars; and two years after that three cents.
Violent price contractions led to the law of diminishing fish as Rockefeller's Standard Oil swallowed the small fry and wound up enjoying average profits on investment of 40 percent from 1882 to 1906.
The barbarity with which it treated competitors and workers led the Supreme Court to impose a measure of civility on the nation's purest monopoly. Following the noble trust-busting tradition, the Court broke Standard Oil into 33 separate firms. Following another noble tradition. Rockefeller retained 25 percent stock interest in each firm.
The resolutions of the mad-dash tensions and profit scares that occurred until the Second World War typified the domestic and international scenarios which would reverberate their way up to the Great Energy Crisis of the 70's.
The discovery of oil in Europe made oil competition international. In order to combat the profit threat implicit in this. Sir Henri Deterding, of Royal Dutch/Shell, invited the heads of the leading oil concerns to his castle in Scotland for an amiable round of grouse and bull shooting. Their "As-Is" agreement divided Rome into proportional parts and, more important, set the final price of British owned Mid-East oil equal to Texas oil, though the former was some 15 to 20 times cheaper to extract. But oil broke out again in Texas and supply began to play havoc with demand. The price of a barrel fell from $1.30 in 1930 to .24^: in 1931. Something had to be done.
The government established prorationing laws which flexibly set the number of days per month in which oil could be drilled in each well. And they enforced the law at gun point. By limiting output, the invisible hand of the free market could resolve itself into a manageable price. Historically, farm subsidies were based on total acreage; the richer you were (the more acreage you owned) the larger the subsidy. Similarly, by basing these restrictive oil laws on individual well output, the rich were favored. Owners of just one or two small wells could not extract enough to get by and were forced to sell out to the larger corporations.
THE FIFTIES
The mortmain of British economic strangulation [must] be relaxed from the throats of neighboring governments and the notorious political and diplomatic precedence of the British [must] be abolished in Egypt and Iraq.
William A. Eddy, U.S. Minister to Saudi Arabia, 1945
Although a country has a sovereign right to nationalize its industries, it does not follow that a country should exercise this right.
United States Petroleum Policy Committee, 1947
America's post-war world was complicated by the fear that traditional allies would follow the Russian example. In addition, the British were in a position we coveted—and could now afford: After the first World War the bulk of proven oil reserves were in the Western Hemisphere, but by the end of the second World War half of all known reserves were in the middle east. And in 1946, England owned 66 percent of that total. America then initiated a policy which would attack the British and funnel money to anti-communist Arab leaders sympathetic to our aims. In so doing, we placed ourselves in two paradoxical positions.
(1) Our need to strengthen Western European countries conflicted with our struggle against England for Mid-East supremacy and also built these countries up to the point where they may become serious competitors, and (2) our gladhanded support of highhanded Arab leaders could lead to internal political rebellions which would snap back at us by the end of the decade.
The primary method used to gain the affection of key Arab leaders was to allow corporations to pay their oil taxes directly to those nations rather than having to drag them home and send them out again. As the Walt Street Journal recently put it, "U.S. taxpayers financed a foreign aid program and never knew about it." Aramco, for example, paid Saudi Arabia $39.2 million in taxes in 1949 while in 1950 they paid them $111.7 million and reduced their payment to the U.S. treasury by an identical amount. The top four U.S. multi-nationals paid no American taxes on their foreign profits of $6.1 billion in 1973. The Governor of Mr. Buckley's home state would very much like to keep the "Tooth Fairy" program which has given free dental care to thousands of poor and working class children who had never seen a dentist. But tax revenues are down—bad ski season they say—and cuts must be made.
Mr. Buckley also reads the papers which talk about our pro-Israel, anti-Arab foreign policy. While we have certainly supported Israel, our generosity has not stopped there. We transferred that tax money for a reason. As Saudi oil minister A.Z. Yamani put it in 1969, "For our part, we don't want the majors to lose their power...We want the present set up to continue as long as possible and at all costs to avoid any disastrous clash of interests which would shake the foundations of the whole oil business."
Life expectancy in his country is 47 years. 90 percent of the people cannot read. In 1973, his King recycled over a billion petro-dollars by buying British and American armaments.
But that sort of economic imbalance courts rebellion. Interestingly, there was a time when America benefited from just such a Mid-Eastern rebellion. In 1946, 80,000 Iranian workers led anti-British street demonstrations, culminating in a one day work stoppage throughout the entire city of Abadan. These rebellions and Britain's refusal to match the concessions other oil
producers had received from other oil consumers, led to the election of Dr. Mohammed Mossedegh. According to Joyce and Gabriel Kotko, America supported his moves to nationalize Iran's oil and mineral wealth because we saw him both as a lever to unseat the British as well as a moderate buffer against Russian influence. But our delight at the dilemma of the English quickly turned to fear that Mossedegh might be too successful and set a bad example for the many other countries where we did business. When Mossedegh refused to denationalize, the C.I.A. sponsored a coup which placed Fazollah Zahedi, a former Nazi collaborator in charge.
Iran's underground wealth had been nationalized in 1951. Within two years, it was in effect transferred from the British to the Americans. Between 1946 and 1953, English control over Mid-East oil dropped by half and American control doubled. The 1928 "As-Is" agreement had served the historic function of controlling supply and demand, but it also solidified British dominance. By 1946.American oil companies had openly renounced the document. The new arrangement we established in Iran granted American oil firms 40 percent control over all mineral rights. But in so doing, America excluded both many Western European countries and many independent U.S. oil concerns. This backfired.
When Egypt nationalized the Suez Canal in 1956, they were invaded by a variety of interested parties. That invasion helped solidify the already present nationalistic tendencies and made it possible for a previously excluded Italian oil firm to work out a deal with the Iranian government far more favorable than the British or the Americans had been willing to grant. Cracks were beginning to appear in our position just as, and for exactly the same reasons, they had in the British position.
Having been excluded from direct access to foreign oil, the U.S. independent oil companies were also mobilized against the giants. Their political pressure coupled with the disintegrating political and economic picture abroad led to the 1959 import quota which limited imports to 12 percent of domestic production.
This state mediation in the dispute between the huge an the merely large set off a profound chain reaction. For this law forced Mid-East oil producers to sell their product elsewhere. And that, for a time, glutted the European market. The major oil concerns fought back by lowering the posted price they paid to the producing countries. Since the posted price was the basis for those country's oil revenue, the oil majors had, in violation of their prior agreement, unilaterally transferred foreign treasury into their corporate pockets.
They continued to do this until these countries formed an organization designed to protect their eroding financial position. It was called the Organization of Exporting Petroleum Countries (OPEC). It was the internal economic contradiction. And all this in what the media calls a tranquil decade.
THE SIXTIES
This decade represents the coming of age of contradictions inhering in our political and economic arrogance. It also demonstrates the limits of state intervention in private domains. By averaging 20 percent profit on investment during the 1950's, the major oil companies had become fat enough to be incapable of effectively preventing competition. The U.S. independents were worming their way back into a business from which they had been periodically excluded. From 1960 to 1972, their share of U.S. gasoline sales went from ten to twenty-five percent.
The historic labor advantages of the American worker coupled with the relative newness of U.S.-aided European and Japanese corporations as well as the encroachment of European oil companies alt worked against the American oil firms. Our balance of payments was extremely poor and our goods were priced too high for export. Our currency stood at its lowest point relative to Europe since the turn of the Century and our control over Mid-East oil was steadily dropping.
Moreover, the Third World countries in general and oil exporters in particular were becoming increasingly militant. Formed defensively in 1960, OPEC was finally able in 1964 to do more than simply prevent further erosion, though from the point of view of oil companies that erosion was necessary, and began to cut even deeper into corporate profits. By the mid 60's, oil company profits were half what they had been in the prior decade and were falling still.
The state, meanwhile, responded to popular pressures to curb the giant corporation and in so doing further undermined the oil monopoly. In 1954, the Supreme Court ruled that the price of natural gas was to be regulated at the well head. While this was not at the time a vital source of energy, by 1969, when that ruling was reaffirmed and seriously enforced, natural gas in demand as a relatively non-polluting energy source. (As a preview into the dynamics of the energy crisis, it is interesting to note that until very recently, industry-supplied natural gas reserves dropped only twice; once in 1954 and again in 1969).
The 1969 Tax Reform Act lowered the oil depletion allowance, and white many oil critics thought it should have been eliminated, even that token cut was badly timed for an industry in trouble. As a chief executive for Texaco put it, "This handicapped the energy industry at precisely the point in time when its capital requirements began to soar."
By the end of the 60's, the interactions between the business cycle, political conflict and state intervention alt but crippled the oil industry. In 1965, the ratio of profits to wages shifted to favor wages and the President's Council of Economic Advisors called for recessionary policies. But the political conflict in Southeast Asia coupled with the political conflict with American blacks made that traditional approach quite risky. Hence guns and butter deficit spending, and intolerable inflation.
That the economic contractions were coming faster and faster was reflected in President Nixon's bi-weekly shifts in economic "philosophy"'. Raise the interest rate to balance our international balance of payments, and unemployment becomes virulent; lower the interest rate and our inflation goes through the roof. Nixon finally proclaimed himself a Keynesian and instituted wage and price controls.
That couldn't have come at a worse time for the oil companies.
THE SEVENTIES
The oil industry entered the 70's facing a crisis typical of capital intensive firms; a growing need for investment funds to pay for expensive machinery not matched by their falling profits. During the 1950's, this industry could raise 90 percent of its investment needs 'from internal earnings. By the 1970's, that figure had dropped to 70 percent. Their long term debt was increasing far faster than their invested capital; in the case of Exxon, nearly doubling from 1963 to 1972. In 1970, oil sales rose by six percent but the profits of the top 38 firms dropped by nearly two percent.
The oil industry had arranged it so their greatest profits would come from extraction, but the newly discovered power of OPEC precluded another simple transfer of money from country to corporation. In fact, things were getting worse. In 1970, Muammar al-Aaddafi overthrew the Monarchy, divided the major oil companies from their traditional solidarity and began a new era of more favorable terms for the producing countries. By 1971, nationalization moves got underway.
Nor was the traditional expedient of eliminating competition readily available. The independents were too strong. In July, 1971, Oil and Gas Journal complained that gas prices were their lowest since 1968. More important, they saw little relief due to the competitiveness of the retail gasoline market. By 1972, oil profits were nearly four percent lower than the average U.S. industrial corporation and in early 1973, Fortune rated the oil industry as the least desirable investment of the ten key industries. Typically, their crisis would soon become our crisis.
SHORTAGE!
The claim that the energy crisis was fiscal rather than physical is not particularly difficult to sustain.
Due to the oil company's selective profit arrangements, refining operations were only marginally profitable. In fact, during the 1960's, twice as many refineries closed as were opened. And even in the 70's they rarely operated at full capacity.
Analyzing Lloyd's of London's shipping reports reveals a 31 percent increase in sailings of multi-national oil tankers from six principal Arabian peninsula ports from 1972 to 1973, between October and December. Platt's Oilgram, a $400 yearly business service, said in January, 1974, "Storage tanks are, in fact, full to the brim in northwest Europe, the east coast of the United States and Italy." The tremendous increase in the importation of refined petroleum products—a method of avoiding crude oil allocation laws—more than compensated for the decrease in U.S. refining capacity.
The total surplus—supply minus demand—of oil in 1973 was nearly six percent above the surplus in 1972. As of September, 1974, stocks of both crude and refined petroleum products stood at an all time high. A government report estimates that during the last half of 1974 world crude supplies would be as much as 1.5 million barrels per day over demand and that figure could rise to 2.7 million as you read this.
A good measure of the actual severity of the physical disappearance of oil can be found by looking at how our corporations selectively sold or unsold their product. As mentioned, our build-up of European and Japanese industries emphasized the energy-intensive plastics, chemical and automobile sectors. The demand for petroleum products in the past two decades has increased more than five times as fast in West Germany, nine times as fast in Italy and twenty-three times as fast in Japan as compared to the United States. The five largest U.S. owned companies sell about twice as much petroleum outside the U.S. than inside it. So while the oil concerns were advising us on the fine points of thermostat reductions, they were employing the traditional hard sell in their foreign markets. Our fuel exports in 1973 were nearly triple those of 1972.
Petroleum Intelligence Weekly summarized the problem: "Crude oil is going begging in the market place."
Seen as a response to falling profits, unfavorable supply and demand shifts, and the rising threat of European competition, the energy crisis represents something of a continuation of our historic oil-based balancing act. There are many echoes from similar problems in the past. In the aftermath of the Suez crisis, there was also talk of rationing and reducing imports. But the prorationing laws which were ostensibly designed to allow for reserve self-sufficiency were never relaxed so as to increase domestic production. In 1958, a Federal Grand Jury indicted 29 oil companies on charges of conspiring to fix the price of crude oil and natural gas. In 1973, the F.T.C. filed similar conspiracy charges against the eight largest oil concerns. In the past 50 years there have been some 300 formal investigations into the workings of the oil companies.
Also familiar is the attack on domestic competition. As Ida M. Tarbetl said in 1904,
Mr. Rockefeller never did anything spasmodically... Sometimes the independents found it impossible to get oil; there seemed to be no end to the ways of making it hard to do business, of discouraging them until they would sell or lease, and always at the psychological moment a purchaser was at their side.
During the 1970's, about 10,000 independent gas and oil concerns were similarly dispossessed. The increases in refined products previously mentioned occurred because, unlike crude oil, the state did not require the majors to share them with the independents. When an independent proposed a refinery in Maine, the majors pressured the state out of it. As Business Week put it, "What they lose by having their excess crude kept out of the country, they gain back by having a profit floor under their extensive U.S. operations."
The previously discussed unbalancing in our economic relations with Europe and Japan was also, at least temporarily, re-shifted because of the energy crisis. At the time of the crisis we were only getting 7.4 percent of our oil from the Middle East and 10 percent from other foreign sources. But Japan and Western Europe were heavily dependent on imports. The consequent strain that high oil prices placed on their economies has rendered them less ominous. Additional benefits from the crisis include a full assault on costly environmental legislation, a push for nuclear power, and the virtually total deregulation of the price of natural gas. Gas can be made out of coal, but the price of natural gas has been too tow to allow for full scale corporate investment. 22 coal-gassification projects are already on the boards for the Western mountain states^ awaiting only a doubling or tripling in gas prices.
The oil companies, of course, own most of the nation's coal, natural gas and uranium mines.
Now that some of the dust has cleared, a number of changes will be forthcoming. The oil companies will no longer own Mid-East oil wells, but they will not have to pack their bags. They will act as middle-men for the Arab states; marketing and distributing the product. Saudi oil minister A.Z. Yamani promised that, "if the negotiations come to a conclusion, the companies will be assured of a long and prosperous future with the producers." Professor M.A. Adelman has explained the mutual benefits of this arrangement;
The producers are smart enough to know that if they become large sellers themselves they risk breaking up OPEC because of their lack of knowledge of markets and the potential for under-the-table attempts to maximize sales in a world surplus situation. So they will likely let the companies continue to do the selling for them.
In order to fulfill this role, of course, it is necessary for the governments involved to have a strong stake in helping the United States. That has been traditionally achieved through foreign aid and a variety of forms of intervention. Today we hear of seizing Arab oil if "they" continue to strangle us. The truth is that we are preparing for the possibility of protecting those wells from Arabs—leftist Arabs. As long ago as January, 1973, Jack Anderson reported that American military corporations were hiring military experts right off U.S. bases, dressing them in civilian clothes and sending them to Saudi Arabia.
The political contradictions remain. Another feature of our post-crisis policy is our paradoxical fear that the dreaded OPEC will be broken up. For we have invested fantastic quantities of money in developing our own energy resources, a development predicated on the continuation of expensive imported oil. So great is this fear, that the state has promised that even if OPEC prices fall markedly it will introduce a two-tier price structure which will artificially increase the final price of imported oil.
We can only destroy OPEC by saving it.
But just as the oil combines could not control a11 of the contradictory pressures that led up to the most recent crisis—it was. after all, a crisis—nor can they control all of the ramifications of their crisis-improved position. There are still dues to be paid.
Since the Europeans and Japanese don't have enough oil to bother putting a price floor under it, they are going to be very reluctant to join with us in this venture. In stunting their growth, the energy crisis also helped drive a wedge between them and us. It is not unreasonable to suppose that they will continue to deal with OPEC independent of America, thus leaving us in the potentially devastating position of having unilaterally high oil prices. This would reverse our present oil advantage.
In addition to the problems of pollution which will now intensify in the near future, and in addition to the threat of the OPEC example of militancy spreading throughout the less developed world, there is the more pervasive dilemma of high oil prices fueling an oil-based economy. We have avoided political upheaval by sheer economic growth, and that growth has been dependent on cheap though profitable energy. In the absence of economic redistribution, the higher prices thus entailed will lead to further economic dislocation and anger.
A 1975 Roper poll showed that 60 percent of the people blamed the energy crisis on businessmen making excessive profits. While this is strictly speaking incorrect—it was the absence of and need for profits that led to and nurtured the crisis—it is a healthy response. It is particularly healthy given the oil company ad campaigns and the response of the news media. Environmental Action's study of 51 news stories on the crisis in May of 1973 revealed that only 3 out of the 51 failed to blame consumer greed, government misregulation or acts of God. But it's getting hard to fool people. As a spokesman for the Oil, Chemical and Atomic Workers said, "We may be paying more for foreign crude, but we're also paying a lot more for industry profits." And as Joel D. Fisher, investment analyst for Drexel Burnham and Co. put it, We do not anticipate that the trend towards increasing social control over the energy industries can be quickly or even wholly reversed. The contagion is world wide. People outvote resources. When the winds of egalitarianism blow strong, capital intensive industries are in for trouble.
So the Vermont Buckleys need reasonably priced land, but the oil companies own or lease about a quarter of America's continental land mass and are bidding for more; they need tax relief, but the oil companies write off billions each year; they need relief from inflation, but the price of oil and the price of the military make that impossible without putting people like themselves out of work; and they need relief from their rising utility bills, but fuel costs and the fiscal bind of the utilities preclude that.
The plight of the utilities, the next step in our story, their imminent status as a quasi-nationalized industry, and the popular resistance they have engendered, provide further illustration of the paradoxical tensions which result when yields on energy investments in a growth economy begin to diminish.
Major References
Union for Radical Political Economics, Energy Packet, $2.50, Box 331
Cathedral Station, New York, N.Y. 10025
James Ridgeway, The Last Play, E.P. Dutton and Co., N.Y. 1974
David Pugh and Mitch Zimmerman, "The 'Energy Crisis' and the Real
Crisis behind it.". United Front Press. 1974
Joyce and Gabriel Kolko, The Limits of Power, Harper and Row, N.Y., 1972
Kevin P. Shea, Environment Magazine. March, 1974 & September, 1974
The history of all hitherto existing corporations is their perpetual struggle to profitably balance supply and demand—for both labor and goods. The market place manifestation of their periodic failure is the crisis of overproduction; too many good to be able to sell them at a profitable price. Specifically, the electric utilities' growth-oriented manipulations of supply and demand have resulted in a level of economic chaos and political conflict which threatens to do them in.
The 500 profit-based investor owned utilities (lOUs) which generate 80 percent of our electricity represent a Keynenian liberal's dream; the metallic efficiency of private ownership tempered by state control. But being the whip tip of a faltering energy delivery system, they have provided the cutting edge for accusation and political resistance. They are, paradoxically, guilty as charged while being profitable pawns in the larger economic paradox.
As self-destructing villians, their quest for stable growth has led to the creation of self-haunting regulation and pricing policies: As pawns in a self-destructive system, they have been overwhelmed by escalating fuel costs, tight money and a constricting economy.
REGULATION. GROWTH AND PROFITS
We will greatly strengthen our position if we accept the inevitable and try to direct the tendency towards legislation which will enable us to conduct our business in a way satisfactory to ourselves and the public.
Look to make your money out of the large business. If you follow the methods we follow here you will assist in creating a class of securities that will stand well in the markets of the world.
Samuel Insull, President, National Electric Light Association, 1912
From their historical beginnings, the lOUs were besieged. From 1902 to 1907, municipally owned utilities grew twice as fast as privately owned ones, and populist reform movements were confronting the Standard Oil trust. Mr. Insull saw the need to co-op these threats while solidifying the power of the lOUs. At his instigation, a national network of regulatory commissions were established to delimit the power of the non-profit utilities while guaranteeing the necessary rates and social acceptance for the profit-based utilities.
Since electrical consumption has grown more than twice as fast as oil consumption, the utilities have been able to couple their favored position in our energy-inefficient economy with technological cost-cutting so as to avoid the vicissitudes of the business cycle. Their historic ability to provide moderately priced yet profitable power allowed them to meet their expansion needs while making the job of the regulatory commission one of routine boredom. All that was required was the most "efficient" method for growth.
A one percent improvement in the ratio of how much electricity is sold compared with how much could be sold at continuous full capacity has been estimated to bring the same benefits to a utility as a $10 million rate hike. Hence they have an interest in avoiding idle capacity. And since once generating equipment is purchased a utility is free to sell as much power as it can, and since profits are calculated as a fixed percentage of sales, they also have an obvious overall interest in sheer growth.
Utility profitability, however, is complicated by two factors: The people who control the utilities are the same people who control their industrial customers, and large users tend to be far more flexible in their electrical demand than small users.
Since large users can be tempted to increase their reliance on electricity by low rates and since price hikes will not seriously affect consumption patterns of low users, the utilities have designed selective pricing policies which maximize industrial growth through cheap power while maximizing IOU profits through sheer growth: The rich and corporate pay less than the small and familial. Industrial use represents half of our nation's electrical use white paying a quarter of the bill.
In any case, a doubting time in demand of just ten years is nearly impossible to sustain, and by the late 1950's, generating capacity threatened to outstrip projected demand. Since electrical growth was so much greater than overall economic growth, this problem was alt but inevitable. The utilities' subsequent supply and demand balancing act—done within the context of their own pricing and regulatory creations as well as the crisis-prone economic system—took them on a grave digging course.
FLAMELESS ELECTRIC HEAT
Quietly but surely over the last 20 years, the role of electricity has been growing enormously in America, not so much because electricity is better for power than the direct use of fuels, but because its use has been vigorously pushed by the equipment manufactures, the utilities and the government.
U.S. Bureau of Mines report, 1968
Each customer who commits himself to the total electric concept is a new ally in the battle to put the cost of pollution, ecological and environmental controls in the proper frame of reference.
Statement of an executive of a Florida IOU
Demand was much tower in the winter than in the air-conditioned summer, so the specific problem was to raise residential demand in the winter. Since lowering prices for residential use would have only nominal effects on demand as well as cutting into the meat of their profits, it was necessary to structurally alter residential demand so as to create greater and more profitable electrical use. Hence the lOUs embarked on an extensive, consumer-paid-for campaign to convince Americans to heat their homes electrically. The Edison Electric Institute alone spent some $3 million a year promoting this venture, and the 1960's saw a 650 percent increase in electric space heating. According to the trade journal Electrical World, fully one quarter of that rise was directly traceable to that promotional effort. Builders have a similar incentive to go alt-electric since the plumbing is simpler, and so the house is cheaper at the point of sale. Between 1970 and 1980, 40 percent of all new homes will be heated electrically, heat accounting for more than half of each such home's total energy needs. The growth of electric space heating is the single largest contributor to the growth of residential electric use. Of course, electric heat takes from 200 to 300 percent more energy and resource use to achieve the same result as even wasteful gas or oil, but that is just how it came to grow faster than oil consumption; and is part of what it means to call it a diminishing return within a diminishing return.
We made fun of a President who would open his windows in the winter so he could fully enjoy the adversity of a roaring fire. Less individually humorous are the utilities and light bulb manufactures who supported excessive office fighting standards to the point where some offices have to run air conditioners alt year to cool off their heat-giving lights. Electric heat and over-lighting have been partial solutions to the pending problem of overproduction; idle capacity. And in successfully raising demand, the utilities were faced with the delightful problem of meeting it.
NUCLEAR POWER
“Progress is our most important product.” Anon
We have seen how the demand for food, transportation and manufactured goods has been materially transformed so as to depend disproportionately on wastefully used energy. In capitalism's best imitation of recycling, firms like General Electric (which shares with Westinghouse a virtual monopoly on nuclear power plants) manufacture energy-demanding items and then manufacture energy. The tightness of this closing circle is demonstrated by N.H. State Senator Eugene Daniel's 1950's research which revealed that G.E., behind layers of dummy corporations, was the dominant stockholder in New Hampshire's largest private utility. But as a technological cure for general energy inefficiency, nuclear power is a perfect instance of a solution becoming a problem in an expanding yet self-diminishing productive system.
Between 1962 and 1972, the uranium enrichment process required for nuclear power used up more energy than the entire nuclear industry put out. One such plant in Ohio uses more electrical power than the entire city of Cleveland.
Dr. Peter Chapman's pioneering work in systems analysis summarizes the problem; Most nuclear programs are designed on the assumption that each additional unit of capacity will be available to meet future increases in consumer demand and hence reduce fossil fuel requirements. The dynamic energy analysis shows this is never the case...Under the best conditions, only a fraction of the installed capacity wilt be available to meet consumer demands; the rest wilt be absorbed by the nuclear industry itself. Even using unreliably optimistic A.E.C. projections, he estimates that it will be another quarter of a century before nuclear power can begin to pay for itself. David Dinsmore Comey of Business and Professional People for the Public Interest adds that cost overruns from historic under utilization of nuclear plants (they run at about 50 percent capacity) wilt cost us $30.2 billion just for equipment already built or under order.
But this onslaught of unproductive production has not been without its complementary contradictions; roughly classifiable into the ecological, the economic and the political.
THE ECOLOGICAL CONTRADICTION
The coupling of a contaminated system with a potable water system is considered poor practice in general...
1969 A.E.C. report on a hose found to be connecting drinking water to a 3,000 gallon tank of radioactive waste.
The perils of the careless atom are well documented. Suffice it to mention that when the permissible doses of radiation were formulated, they were admitted to possibly cause a 5-10 percent increase in cancer and the creation of a quarter of a million babies born with physical challenges. Non-nuclear electrical generation accounts for 16 percent of our total air pollution, over a quarter of our nitrogen oxides, nearly one-third of our particulate matter and half of our sulphur dioxide. Utility right-of-way lines already exceed an area the size of the state of New Jersey.
Environmental damage is the physical correlate of corporate debt as it allows for temporary increases in horizontal growth—sheer output. And rather than make the unprofitable switch to inherently clean technologies and methods, our system is attempting to use the same technologies to clean up. This paradoxical position of a dog seeking satisfaction with its own tail is reflected in the typical statement of the president of an Arizona utility; "The only chance people who live in the cities have to get clean air is to manufacture it." The expenses of such self-defeating energy use to cure energy-linked environmental problems are related to the second area of conflict.
THE ECONOMIC CONTRADICTION
When a utility actually cannot raise necessary capital, hot fat wilt be sputtering in the fire.
Priest. Public Utility Regulation. 1969
Although utilities have selling monopolies, they must compete in the capital markets for expansion money. They must be attractive. The lOUs have lost their half-century tradition of solid, profitable growth and have become a very hard stock to sell. They have been victimized by their self-created pricing and regulatory policies as well as by the external forces of inflation and contraction. As long as each additional unit of electricity was cheaper to produce than the one before it, increased production would lower costs and allow for sufficient profitability without disturbing tranquil relations with regulatory boards.
By the mid 60's, however, cost-cutting methods had begun to run into the taw of diminishing returns so that each additional unit of electricity was more expensive than the previous one. Hence, the policy of enforced growth had backfired with existing rates. The external forces of that dues paying decade—inflated fuel and interest costs— made the utilities go before state regulatory commissions with unprecedented rate hike demands. But unaccustomed as they were to such demands, sluggish as state agencies can be, and close as they were to citizen scrutiny, the commissions laggd far behind the utility's financial needs. The lOUs were in trouble.
From 1964 to 1974, their earnings per share grew at only half the rate of the prior decade, and tike the oil companies shortly before their crisis, the utilities had to took outward for financing. In 1964, 60 percent of IOU investment came from retained earnings. By 1974 only 25 percent of investment was thus covered. The natural solution was to drastically increase the interest they were paying on their bonds, but this meant that less money was available to pay out to stockholders. From 1971 to 1974 utility stock prices dropped by half, thus circularly aggravating their fund raising problems.
And since utilities represent one-quarter of alt new stocks and bonds issued each year, their borrowing dilemma quickly became the borrowing dilemma of the nation as overall interest rates were driven up, thus circularly aggravating their problem.
Their money, like their product, became more expensive and less productive.
LAST GASPS
We have about reached the break-point; the stage where utilities must be restored to financial integrity or the system as it exists today must be radically changed.
Daniel W. Gardiner. utility specialist, Btyth, Eastman, Dillon and Co., 1974
A three-pronged strategy is underway for restoring utility fiscal integrity. The first is simply to cut back tens of billions of dollars in projected construction over the next half decade. White this wilt tighten their debt and ease pressure on the nation's monetary supplies, it will increase the labor debt—unemployment—at precisely the time we are supposed to be leaving the recession.
The second prong is an attempt to bypass state commissions. President Ford is asking approval for a plan which sets a five month limit on regulatory delays in granting utility price hikes, allows utilities to pass along their fuel cost increases automatically, and permits significantly higher rates by restructuring the traditional basis on which IOU costs are calculated. The final gambit is a variant of the traditional bail-out: Even though the environmental improvements are already required by law, a utility will soon be able to finance up to 30 percent of its building costs through tax-free "pollution control bonds". Environmental Action Foundation estimates that by 1983 this state subsidy to the utility and wealthy bond holder wilt save us rate payers about $300 million each year. But it will cost us taxpayers $700 million each year.
The difference is the price of integrity.
When tax revenues, tow cost goods and job security are inimical to corporate stability, they are sacrificed. But consciousness levels have risen along with ecological and economic costs; so the solution of imposed unemployment, high prices and tax avoidance has led rather naturally to the third source of conflict.
THE POLITICAL CONTRADICTION
We're running a business. The welfare people should have been taking care of them.
Spokesman for Niagra Mohawk Power Corp. 1973, in response to the deaths by freezing of two
90 year old people for non-payment of a $2.02 electric bill.
It has been a long time coming, but IOU-estabtished public control is contagious and self-haunting. From the late 1930's, there have been union backed moves to establish a State Power Authority in Vermont, but "public" was a far dirtier word back then and the lOUs could always beat back such moves in the House. Yet as the problems inherent in private ownership of public affairs intensified, people rapidly moved from the reformist position of requesting more "responsiveness" from distantly owned utilities to the demand for direct control over that particular means of production. The morass of interlocking directorships, dummy corporations and obscure rate hearings are being understood as a whole; transcended, and replaced. So that spokesman for Niagara Mohawk may find himself out in the cold. For, not untypically, the citizens of his town have passed a bond issue enabling them to buy and operate his utility as a non-profit municipal power company.
Given the powerful external constraints that will conspire against even a decently run utility, eg, fuel costs, one must not see the energy struggle ending there. But as the private sector fails in other areas, the distinction between private and public collapses to the detriment of the former, and the social costs of maintaining that fiction become insupportable.
POLITICAL ALTERNATIVES
Customers pay for service, not for the property used to render it....By paying bills for service they do not acquire any interest, legal or equitable, in the property used for their convenience...
U.S. Supreme Court
Public control is often seen as equal in venality to private control because we have never really had public control. It has always been ideologically or materially a captive creature of private capital. Under the juridical umbrella which reertitizes the sanctity of private property (and makes no distinction between ownership of corporations and umbrellas), the lOUs have been busy pumping the ideological prime. In the1950's, over half of their advertising dealt with the specter of communism. One such ad in the early 1960's showed a picture of an elderly couple being turned back into East Berlin: "There's a quiet threat within...when government owns business...it can tell you where to work and live, even what to do or say." During 1964, over a million self-praising editorials were distributed by private utilities to newspapers and magazines throughout the country.
Although about 12 percent of our nation's power is generated by the Federal government, the prolonged private/public battle that preceded it did manage to shape its direction accordingly. The Bonneville Power Administration, for example, is mandated to, "encourage the widest possible use of all electric energy that can be generated and marketed—to act, in short, as appendages to the growth needs of private power and industrial concerns. The ecological debt thus incurred is then used as evidence of the futility of public control and of man's inherent squallor.
Since it is not profitable to service geographically diverse small users, the lOUs have an history of refusing to do so. Hence, about a thousand rural electric cooperatives have sprung up to distribute power on a non-profit, democratic basis. Mr. Buckley belongs to one such cooperative. But democracy that is captive to profit-based autocracy is a sham. The coops are too small to generate their own political or electrical power. This has helped devastate them. When the small towns served by the coops grew to profitable dimensions, the lOUs frequently set up competing "spite" lines to disrupt the coop's harmonious growth. There are still Vermont towns in which customers on different sides of the same street are served by private and public utilities—the public ones having been there first.
From the early 1940's, proposals have been made in the Vermont House to import inexpensive hydroelectric power from Canada or Maine. The Maine power would have been publicly controlled and would have given cooperative and municipal systems a greater measure of independence. The lOUs were repeatedly successful in destroying such proposals—though by the 1960's, their margin of success was extremely narrow. Privately owned nuclear power was substituted.
Today the atom provides about 20 percent of New England's and virtually all of Vermont's power. It has regularly exceeded its proponent's price claims by a factor of seven and is the single most important reason that Mr. Buckley's captive cooperative is suffering financial setbacks and political in-fighting.
HAPPY ENDING
Despite such obstacles, when the people receiving power generation are themselves empowered to make relevant decisions, the economic and ecological track record is much improved.
According to 1969 F.P.C. figures, public power for residential users is a full third cheaper than private power. Nebraska is run entirely on the non-profit system and has the lowest rates in the entire Midwest. The Basin Electric Cooperative in North Dakota has historically urged strong anti-pollution and strip mining legislation and refused to pollute water with power plant ash even when existing taw permitted it. The citizens of Eugene have simply voted not to build a nuclear reactor for their municipally run utility. Public ownership in Seattle, Washington has led to the nation's first rate structure in which larger users pay proportionately more.
The difficulty in capturing the array of non-polluting techniques available to deal with reasonable energy use stems from the dual shortage of writing space and funding. Senator Magnuson's proposed one percent tax on utility revenue to research non-polluting power alternatives has the support of the Public Power Trade Association and the stern opposition of the private power lobby. No degree of control is too small to risk losing.
Renewable energy sources tike the wind, the tides, geothermat steam and the sun all remain provable but systematically unproven. In 1975, these sources received only 0.4 percent of the Federal energy research budget. The National Science Foundation has shown that with 8-15 years of modest $150 annual outlays, solar energy to produce electricity and clean fuels would become commercially feasible. Yet between 1950 and 1970, solar research received an average of $100,000 a year white nuclear power funding totaled $80 billion. Today solar heating and cooling receives about one half of one percent of the overt funding for nuclear fission, and solar conversion to electricity and clean fuels has been receiving less money than it takes to write up the environmental impact statements for our nuclear plants.
Using their most pessimistic figures, the American Institute of Architects estimates that energy savings from design changes in new and old buildings could eliminate the need for all nuclear plants projected through the year 1990: Funding for energy conservation rose dramatically in 1976, reaching 0.049 percent of the total energy budget.
CONCLUSION
Although our social structure has not permitted a significant redistribution of wealth, it has been able to simulate universal wealth through the sheer volume of manufactured goods with deceptively tow prices at the point of sate. Three interrelated methods have been used in this effort:
(1) Low production costs are achieved by restrictive tabor policies (unemployment), spreading resource costs (pollution), and international branch office plunder (imperialism); (2) Energy is substituted for tabor as the corporation simulates genuine progress by plasticizing and speeding up the production process; (3) The state simulates the free market—consumer demand becomes pump priming; healthy business turnover becomes corporate tax breaks; and the marketplace fruits of salary earnings becomes various forms of relief. Hence the spectacular rise of welfare and military budgets, selective technological advances, federal and environmental debts, and the energy combines.
But these collapse-avoidance devices have led to two paradoxes: (1) Massive government revenues are needed to pump-prime and pay for pollution and unemployment, yet revenue-depriving tax breaks are needed to stimulate over-stocked, under-financed corporations: (2) Inflation and unemployment can be kept at safe levels only by increasing worker productivity, yet this entails greater energy dependence, and as that investment expands its returns progressively contract.
Reflecting its year to year cyclical behavior, as the economy grows more awesome, its internal bedevilments render it more rotted and vunerable. The coming due of ecological, economic and political contradictions has made it increasingly difficult for our system to keep its production costs down. And within the system of profitability, when horizontal growth (volume) is threatened, it must be replaced with vertical growth (tower output/higher prices).
Russel Baker has fantasized about the logical outcome of this process: Under the new taw, prices go up as demand goes down, and they have gone so high that only three consumers are left to keep the great engines of business turning. Last year, for example. General Motors made only one car, but was able to show its usual good profit margin by selling it to King Faisat for $4.6 billion.
As the economy feeds on itself, it is increasingly in the position where fewer firms make expensive goods for fewer consumers. An A.B.C. news commentator recently remarked that some economists were unhappy about a proposed tax break for the poor since the top 25 percent of tax payers buy over half of all new cars.
Like many dystopian novels which predict this outcome of developed capitalism, Mr. Baker's quotation parodies a situation in which the masses are increasingly superfluous to the workings of an elite (though, of course, the masses were used to make that situation possible). But the novelist's notion of an invisible, sideline-watching population is inaccurate: For the Vermont Buckleys and many others are coming together and demonstrating—figuratively and literally—that quite average people will demand and can handle meaningful institutional control.
As Mr. Buckley himself explained it at his cooperative's annual meeting:
A lot of things and a lot of people just came together at the same time. Our costs are rising and things aren't working as they should. Control over utility companies is a large issue today...so is people having control over their own lives.